As we have watched the stock market’s meteoric rise over the past few months, you may not have noticed that gold and silver have been on their own fantastic voyage higher. Both metals have been running higher, gold past all-time highs for several weeks now but silver at multi-month highs. Stocks, meanwhile, are pushing on multi-week highs. It has been an impressive run, even as the counter trade, the US dollar, remains strong.
Why are gold and silver so strong?
The historical reasons for holding precious metals remain valid. They store value, are in short supply, and act as a hedge against inflation, especially in times of war. Gold has been very strong over the past several years, as some sovereign nations have chosen to buy gold aggressively, usually on the dips.
2024 has been outstanding for precious metals. Gold is higher by 29% YTD, and silver is up by 33%. These are stellar gains, and they are way ahead of equities – the SPX 500 and Nasdaq up only 20%.
But if they are rising sharply, does that mean trouble is brewing for equities? After all, back in the early 1980’s, gold rose to record levels ($880 per ounce). This was a signal that a recession and high inflation was coming. That turned out to be true, but then the Federal Reserve took over the reins in the late 80’s and that blew a hole in the theory.
Diversify your portfolio with these precious metals
Over the long term, precious metals are not highly correlated with the equity markets. Even a small allocation of gold and/or silver would diversify a portfolio nicely, reducing your risk and volatility. Some strategists would suggest a 5-10% allocation to gold and 5% to silver.
With gold near $2,700 per ounce and silver about to close above $30 per ounce, we may be looking at a short term peak. But there is no question that these metals are providing great returns. Gold has been up 12 of the past 14 years, an impressive run that does not seem to be ending.
Keep some gold and silver in your portfolio, and watch it grow in value for years to come.
